I’m Professor and Chair of the Department of Economics at LIU Post in New York. I’ve published several articles in professional journals and magazines, including Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance. I’ve have also published several books, including Collective Entrepreneurship, The Ten Golden Rules, WOM and Buzz Marketing, Business Strategy in a Semiglobal Economy, China’s Challenge: Imitation or Innovation in International Business, and New Emerging Japanese Economy: Opportunity and Strategy for World Business. I’ve traveled extensively throughout the world giving lectures and seminars for private and government organizations, including Beijing Academy of Social Science, Nagoya University, Tokyo Science University, Keimung University, University of Adelaide, Saint Gallen University, Duisburg University, University of Edinburgh, and Athens University of Economics and Business. Interests: Global markets, business, investment strategy, personal success.

Why Coke Should Buy Red Bull And Future Cola

I don’t know whether Red BullRed Bull or Future Cola are for sale. And I have no information concerning whether or not Coca-ColaCoca-Cola is interested in buying Red Bull or Future Cola either.

But in a diverse world market environment where scale and scope are the drivers of corporate growth and profitability, you either buy your competitors or they buy you.

This is especially the case for large multinational companies starved for growth, both in mature and emerging markets, like Coca-Cola. This week the company’s fourth quarter sales missed its own goals.

“Carbonated soft drinks are the biggest drag, particularly in the U.S., where industry volumes have fallen for nine years in a row and declines are accelerating,” writes Mike Esterl of Wall Street Journal. “Worsening matters, sales have slowed in key growth markets like China and Brazil as more consumers turn to still beverages. While Coke has diversified into everything from sports drinks to coconut water, soda still represents 75% of its global volume.”

That’s why Coca-Cola needs to acquire Red Bull and Future Cola.

In mature markets, the acquisition of Red Bull will allow Coke to diversify from its slow-growing carbonated business into the fast-growing energy drink market, an area Red Bull dominates. Though such an acquisition seem unlikely, given the ownership structure of Red Bull, INSEAD Professor Ron Adner thinks that such a scenario may be “crossing” Coca Cola’s mind.

“Buying Red Bull is probably a thought that is now crossing Coca Cola’s mind as it made the mistake of not buying an established brand when Pepsi did,” writes Adner. “Pepsi bought out an existing energy drink brand SoBe in 2002 whilst Coca Cola decided to invest in its own R&ampamp;amp;amp;amp;amp;amp;D to produce its own energy drinks. SoBe now has the second largest market share after Red Bull (albeit 10% this is still double Coke’s market share in the sector). Ironically if you combine SoBe with Pepsi’s AMP energy drink the combined Pepsi share is about 20% compared to the 5.2% of Coke in the USA.”

The purchase of Future Cola will help Coca-Cola tap into emerging markets — most notably China’s rural cola market, dominated by Future Cola, which entered the market in 1998.

“Future Cola’s first product first copied Coca-Cola’s packaging design, but its flavor was tailored to the Chinese palette,” writes Edward Tse in The China Strategy. “Unlike Coca-Cola, which target major cities, Future Cola sought overlooked consumers in rural areas. It imported state-of-the art equipment and quickly localized production facilities, allowing it to offer products at significantly lower price points.”

In addition, Future Cola launched an aggressive, highly focused marketing campaign aimed at building a brand image as “The Chinese People’s Own Cola,” which seems to have worked. Future Cola’s market share went from next to nothing in 1998 to 15 percent by 2001.

Future Cola’s case further points to the areas of the world economy where most neglected markets are to be found, the bottom of the world income pyramid. That’s where billions of consumers are ready to buy what the middle and the top of the pyramid have been enjoying for years, provided that marketers come up with the right bundle that increases affordability—as discussed by C.K. Prahalad in The Fortune at the Bottom of The Pyramid several years ago.

Once again, however, such a deal seems unlikely, as there are no signs that Future Cola’s parent is eager to sell the brand.

In addition, acquiring a Chinese company is a tricky business, as property rights aren’t well defined in China. This means the word “private” has different meaning in China than in the US, which complicates matters, especially when the acquirer is a foreign company. Besides, there are all sorts of issues that make it difficult to complete a deal in China.

My point is this: To re-ignite its growth, Coca-Cola needs big deals to address new trends in mature and emerging markets, rather than R&D, massive advertising, and new product delivery systems. If Red Bull and Future Cola aren’t up for sale, some other competitor will be, provided that the time is right.

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